Amidst a continued slowdown across the national housing market, which includes national home sales dropping to a decade low in March, Bank of Canada Governor Poloz suggested, “We’ve gone from boom to bust, of course, with lots of new policies put in place.” Ironically the Bank has recently engaged in the purchasing of Canada Mortgage Bonds, a policy which arguably ensures adequate liquidity in the mortgage market. Again, while the Bank maintains this is simply a diversification to offset currency liabilities and nothing to do with concerns in the mortgage market, recent growth in the residential mortgage sector should be keeping Poloz and his crew up at night. Per recent data from the Bank of Canada, residential mortgage credit growth was just 3.22% year-over-year in March, levels not seen since 2001. On a more optimistic note, there has been a recent uptick in the three month annualized growth rate which suggests we may have bottomed. Particularly given mortgage costs have been declining in recent months. This also does not include the alternative lending space which is booming. However, given the indebtedness of Canadian households and the stretched valuations in housing, there continues to be a diminishing return on new credit.

With Greater Vancouver condo prices declining, now down 5.9% year-over-year in March, this is having an immediate impact on the pre-sale market. As has been widely reported, developers are having to ramp up incentives, including decorating allowances, Realtor bonuses, and a full year of free avocado toast. This should not be surprising given the pre-sale absorption rate fell to 15% in February, down from a cycle high of 94% set in January 2018. Long gone are the days of packed sales centres with lineups of frenzied buyers. Today buyers have plenty to choose from as sales drop to an 18 year low in the resale market. Given the deteriorating outlook for the Vancouver housing market, buyers are becoming increasingly more cautious about locking in their money on an unfinished pre-sale unit. This has sent unsold inventory surging across Metro Vancouver concrete condo construction, up 184% year-over-year in Q1 2019. This has finally pushed pre-sale concrete condo prices lower, taking their first quarterly decline since Q2 2014. Developers are facing difficult times as they navigate the shifting landscape, with increasing risks that some existing buyers may simply walk away from contractual obligations. These risks have been heightened through lower prices, tighter

It’s been over a year now since the BC Government introduced a bout of policies aimed at cooling the provincial housing market. Policy measures from the BC Government in addition to a barrage of other demand side measures, including the B-20 Mortgage Stress test and restrictions on Chinese capital flight continue to weigh on the provincial housing market. Weakness has been well documented in Greater Vancouver where home sales tumbled to thirty three year lows in March. However, that has spread across the province where home sales in BC fell 23% on a year-over-year basis in March. It was the slowest month for sales since 2013, and down 54% since peaking in 2016. Dollar volumes have also fallen significantly, which is unsurprising given the steep decline in sales, particularly for luxury homes. Sales volumes fell 27% from last March and the 12 month sum of total dollars spent paints a rather ominous picture. The drop in sales activity and the rise in listings continues to place downwards pressure on prices. Prices dipped 5% from last year, marking the eleventh consecutive month provincial home prices were negative on a year-over-year basis, the longest losing skid since 2013. The average sales price

CIBC’s chief economist Benjamin Tal argues the alternative lending space continues to grow, a result of the B-20 mortgage stress test. For those unaware of alternative lending, it’s essentially the place you go when you can’t get a loan from a traditional bank, usually because your credit sucks. Unsurprisingly this space has been growing as highly indebted Canadians in need of more debt to pay off existing debts are now being turned down at banks, largely thanks to regulators saying enough is enough. Per CIBC and Equifax, alternative lenders account for close to 12% of the total number of transactions and about 15% for the Greater Toronto Area. A year ago, that number was close to 10%. Unfortunately nobody has done the research for Vancouver but one has to think its in the same ballpark. As I have written before a huge chunk of this growth is being propelled by your average Mom & Pop homeowner tapping their existing home equity at 3-4% and lending it out at 9-10% and leveraging that spread. Of course this type of phenomenon can only be achieved in a low interest rate environment where central banks have suppressed interest rates, thus pushing investors further

National home sales continued their slump in March with the Canadian Real Estate Association reporting March home sales dipped 4.6% year-over-year. It was the 15th consecutive month that home sales have declined, a feat not accomplished since 2008. “March results suggest local market trends are largely in a holding pattern,” suggested the associations Chief Economist, Gregory Klump. Indeed, with March sales trickling in at 40,039 it was the slowest month of March since 2013. With sales slumping, particularly in Vancouver, Toronto, Edmonton and Calgary, the national home price index fell into negative territory, declining 0.5% year-over-year. It was the first time the national home price index has slipped into negative territory since September 2009. Price movement varies across Canadian metros. Unsurprisingly, the largest declines in the composite home price index were felt in Greater Vancouver which fell 7.6% in March. Calgary and Edmonton both fell by 4%. Meanwhile, prices edged slightly higher in Toronto, Greater Montreal, and Ottawa which saw prices inflate by 7.64% from last year. There are increasing reports of bidding wars in the streets of Ottawa– a nightmare Vancouverites are all too familiar with.

The building boom which has transpired across Greater Vancouver and into the suburbs of the Fraser Valley remains rather intriguing. As is typical in housing booms we typically see a drive to qualify, a phenomenon where buyers get priced out of the city and are forced to drive further out in order to qualify for a purchase. Further, investors or speculators who see lower or more affordable prices begin to speculate on the next boom town. As we can see in the Fraser Valley, prices were stagnant for years before seeing a meteoric rise over the last few years. However, following a couple years of unprecedented price growth, Fraser Valley condos have begun their descent, dropping 5.1% year-over-year in March. This drop has been spurred on by a large drop in sales, but also a big increase in inventory, particularly in the new construction segment where a building frenzy is still currently underway. New construction condo inventory listed for sale on the MLS has risen 47% year-over-year in March and currently sits at the highest total since August 2013. A large chunk of this inventory is investors trying to exit their pre sale obligations. Monthly assignment listings are on the

Residential building permits are a well known leading indicator as to the future strength of the housing market and the economy. Given the obvious knock-on effects from a weaker housing market, and the loss of jobs in the ever so important construction sector, any decline in building permits is generally perceived as being negative for the medium term outlook of the economy. While home builders maintain a bullish outlook on the housing market in media presence (for obvious reasons) the recent slowdown in building permits suggest optimism has soured. On a national level, the value of permits for residential buildings declined 11.3% on a year-over-year basis in February. While the data is relatively noisy, it was the sharpest monthly decline since October 2017 and something to keep an eye on as home sales drop across the nation. The slowdown was particularly acute in Greater Vancouver where we are seeing significant weakness in the value of building permits for single family homes. The 12 month sum of permits fell to just below $1.5B, down 22% after peaking in June 2016. This coincides with the peak of the detached housing market which has seen prices drop anywhere from 15-35% depending on the

Similar to last month, the Vancouver condo market once again reported the fewest monthly sales in eighteen years. Sales took a steep drop, falling 35% year-over-year as they play catch up with the detached housing market. Given the lack of sales this allowed inventory to nearly double, growing 94% from last year. While the rapid pace of inventory growth is concerning the months of inventory remains balanced at just under 6 months. However, given new listings continue to grow and there are still over 40,000 units under construction in Greater Vancouver we expect inventory to continue trending higher which will surely place added price pressure on the condo segment. As we can see, with lower sales and rising inventory price pressures are already building. Condo prices fell 7.5% year-over-year. The average price per square foot now shows an 11.5% decline from last year which is right in line with what we are seeing from a feet on the ground perspective.  

Just when you thought Vancouver detached home sales had bottomed they once again outdid themselves. Detached sales slipped 14% year-over-year in March, recording the fewest sales on record with data for the city of Vancouver going back to 1992. It’s hard to imagine sales falling any further from here, what is more likely is they continue to remain sluggish for a prolong period of time but increase slightly as prices decline and buyers on the sidelines can be enticed back into the market with lower prices.  What is interesting is that despite the obvious weakness in home sales, new listings remain low, dropping 15% year-over-year and total inventory dropping 9.6% from last March. However, there is still plenty to pick through as months of inventory remains elevated at 12 months. This is well above balanced conditions which is considered between 4-6 months of supply. As a result, there remains downwards pressure on home prices, particularly at the higher end where Chinese capital flows have hit the brakes. This has pushed the official MLS home price index negative by double digits year-over-year and marks the steepest decline in a decade.   It is important to note that home prices at the higher

The month of April turned out to be another disappointing month for home sales activity across Vancouver. Sales in the city of Vancouver fell 27.6% year-over-year in April to their lowest count for the month since the year 2000. As we have stressed in previous reports, real housing downturns are generally more prolonged than most market participants would come to believe and this one is certainly shaping up to be no different. Through the first four months of this year, year to date sales are off to their lowest count in three decades. That alone should turn heads, particularly since we’ve added nearly a million people since. As a result, we are seeing inventory grow and prices move lower across all segments. Buyers have become increasingly hesitant, particularly for unbuilt product such as pre sale condo assignments and new unfinished development in general. This is prompting condo developers to increase bonuses and incentives as unsold inventory beings to pile up at presale centres across the lower mainland. While policy makers remain intent on their desire to keep new lending in check this is impacting the national housing market, with the national home price index dipping into negative territory for the

Following a once considered inconceivable decline in home prices across Greater Vancouver, housing affordability is unsurprisingly improving. Indeed the team at RBC Economics has caught on, updating their latest affordability index. RBC summarized the changing dynamic in the nations most expensive property market, “The Vancouver-area housing market is in full-blown correction mode. Home resales have plummeted 58% since the peak in early 2016 with no sign of a turnaround so far in 2019. While various policy measures triggered and sustained the correction, Vancouver’s ongoing affordability crisis explains most its magnitude. The demand-supply balance now favours buyers and prices are falling. This helped RBC’s aggregate affordability measure to improve by 2.6 percentage points in the fourth quarter. With ownership cost still representing 84.7% of household income, we’re still a long way from the end of the crisis.” The recent pullback in home prices, which as of February saw Greater Vancouver detached home prices slide 9.7% year-over-year, and condos dip 4% from last year should come as no surprise given the bout of policy measures and rather benign mortgage credit growth, which is expected to continue as the economic outlook slows and the yield curve inverts. Affordability pressures, however, remain elevated- particularly

With the Canada 5 year bond crashing below 1.50, the lowest level since mid 2017, there remains cautious optimism that banks will slash mortgage rates- providing a shot in the arm to the Canadian housing market just in time for the spring market. It would certainly be welcoming news for an industry witnessing the fewest home sales in a decade and mortgage credit slowing to its weakest pace of growth since the 1980’s. However, those hopes could very well disappoint for several reasons. A regime shift from policy makers continues to move further away from an economic growth model propelled by the Canadian consumer. Given record levels of household indebtedness and elevated home prices, policy makers have shown little desire to encourage more borrowing. This stance was reaffirmed following a Federal Budget which killed consensus views for the re-introduction of a 30 year amortization, while also keeping the mortgage stress test firmly in place. Meanwhile recent developments in the bond market illuminate slowing growth which has officially inverted a good portion of the yield curve. Yield curve inversions have presided before nearly every recession. This is partly due to not only compressing net interest margins at banks, technically making it